The outcome of the Bank of Japan's October meeting is largely predetermined: the central bank will almost certainly keep all policy settings unchanged. This is the baseline and most-expected scenario, and its implementation would not surprise anyone. Formally, the October meeting can be described as a pause — the central bank's wait-and-see stance is already priced in. However, that does not mean FX markets will miss Friday's events. On the contrary, USD/JPY may show significant volatility, especially if the BOJ's rhetoric is more cautious than most market participants expect.

First, recall the central bank last raised the policy rate only recently at the September meeting (to 1.25%). So an October pause is understandable: the Bank needs time to assess the impact of the prior move on lending, consumer demand and investment activity. Raising borrowing costs at two consecutive meetings makes sense only if inflation risks are accelerating sharply. So far, that urgency does not appear to exist: in the latest Tankan survey, firms' inflation expectations remain elevated but have not accelerated from the prior quarter.

That said, the inflation problem has not disappeared. Nationwide core CPI excluding fresh food accelerated to 2.1% in September (from 1.7% in August), while the core measure excluding fresh food and energy rose to 2.4% (from 1.9%). Services inflation also picked up, from 1.2% to 1.5%. These arguments favor further tightening, but they do not compel the Bank to act this month.

Broadly speaking, the question is the pace of rate hikes, not whether the BOJ will embark on a hawkish path at all.

The main intrigue of the October meeting is what signals the Bank will send about December prospects. Most analysts now place roughly an 80% probability on a rate increase in December — the market is almost certain of that next step and is already pricing it in. Under these conditions, any hint of doubt about a December hike could trigger substantial yen weakness, even if the BOJ "generally" reconfirms its readiness to continue tightening.

Updated staff projections and the Bank's assessment of how durable inflationary pressure is will be crucial. If the BOJ uses cautious wording, the yen will come under significant pressure. Importantly, the market needs more than generic reassurance that the Bank remains on a tightening path—it needs confidence that the conditions for the next move are already in place. That distinction between holding the overall course and committing to a concrete timetable will likely determine how USD/JPY traders react to Friday's events.

I think the BOJ may take a more cautious stance than market participants expect. Remember that high energy prices both push up inflation and reduce households' purchasing power. Raising interest rates will not remove the root cause of imported inflation, and it may further weaken domestic demand. So even an upward revision to the inflation forecast would not, by itself, imply an acceleration of monetary normalization. If Kazuo Ueda emphasizes the sources of price pressure and the risks to consumption, market participants may rethink their expectations for a December rate hike — which in turn would put pressure on the yen.

Friday's macro releases add another twist. Just hours before the BOJ decision, Japan will publish unemployment, industrial production, retail sales and Tokyo's October CPI.

The last report deserves special attention in the current context: metropolitan inflation data are released ahead of the national figures and allow an early read on price trends. The consensus expects Tokyo core CPI (excluding fresh food) to slow from 2.7% to 2.6%, and the sub-core index (excluding fresh food and energy) to fall from 3.0% to 2.7%. In other words, both core measures are forecast to ease. The second measure is especially important because it helps isolate the direct impact of energy prices.

If core inflation slows more than expected, the central bank will have an additional argument for cautious rhetoric. One report alone is unlikely to radically change the overall economic assessment, but it can influence the tone of the press conference and market confidence in a December hike. Conversely, a stronger-than-expected print would materially strengthen the case for further tightening.

So the expected BOJ pause does not remove the intrigue of the October meeting. For USD/JPY, the decisive factor will be how closely the BOJ's actual signals match the expectations already priced in. In such uncertainty, it makes sense to remain on the sidelines until the Tokyo CPI is released, the two-day meeting concludes, and Ueda's press conference ends. The initial market reaction may be misleading, so there is no rush to open positions now.